Vol. 4, No. 1

Vol. 4, No. 1

Each edition of Tax Matters consists of free-flowing responses by three tax practitioners to a question regarding a current issue in tax law and policy. Tax Matters commentaries provide insightful perspectives on a broad range of topics, making important contributions to the dialogue within the tax bar about cutting-edge issues. Although the commentaries are certainly of interest to the academic community, they are primarily directed toward tax professionals and their clients.

In several recent private letter rulings, the IRS appears to apply an expansive interpretation of the definition of “real property” and “rents from real property” in relation to real estate investment trusts (REITs). As REITs purchase properties that include renewable assets, such as solar panels and wind turbines, the continuing development of such assets puts further pressure on the definition of real property and rents from real property. Although private letter rulings do not have precedential effect, some practitioners may look to them for guidance regarding specific issues, especially if a transaction comes squarely within, or close to, the four corners of a ruling. If a private letter ruling describes property such as electricity transmission lines, natural gas pipelines, cell towers, billboards, or renewable assets with sufficient specificity, perhaps tax advisors could become comfortable concluding that similar assets would qualify for the treatment granted in the private letter rulings.

What effects, if any, do the series of private letter rulings have on advice practitioners are giving to clients? Do the rulings provide sufficient insight into the IRS’s thinking to extrapolate a general definition of real property and rents from real property? Or should Congress or Treasury develop a general definition of real property and rents from real property? What policy reasons, if any, support an expansive definition of real property and rents from real property?